The changing face of the procurement function

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August 29th, 2017

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Four postgraduates* studying for a master's in strategic procurement management at the Grenoble IAE Graduate School of Management have produced an animated video about the history of the procurement function. From providing administrative support to factories in the 1850s to playing a strategic role in helping companies defend their competitive edge today, procurement has undergone a fascinating change. This video draws its inspiration from an article by Natacha Tréhan, entitled "The procurement function of tomorrow's world: prospective analysis by the P-M method", published in 2014 in the "Management & Avenir" magazine, and spends a few minutes taking a fun look at the origins and evolution of procurement.

From 1850 to the late 1960s

Procurement emerged in societies and especially underwent development during the two World Wars due to its key role in obtaining essential materials.

Henri Fayol, a pioneer in corporate management and administration, made a visionary pronouncement in 1916: "Knowing how to buy and sell is just as important as knowing how to manufacture…"

The post-war era was instrumental in the growing recognition of the procurement function. The challenge was satisfying the population's growing needs. This development ushered in a production economy, whose hallmarks were demand outstripping supply, stable competition and an abundance of raw materials. However, the procurement function was still highly administrative and product-oriented, with only short-term relationships with suppliers.

In the 1970s

In the wake of the oil and financial crises, growth started slowing down coupled with high interest rates, price inflation and increasing competition. The supply-demand ratio was reversed. The procurement function helped companies defend their competitive advantage and modernised its role with three new responsibilities: active intelligence gathering, supplier network management and participation in identifying innovations.

From 1980 to the late 1990s

The procurement function became increasingly professional and began incorporating risk control and external resource management in addition to its traditional cost control duties. The "adversarial" approach that had characterised dealings with its suppliers was abandoned in favour of a relational-oriented approach. Companies begin forging partnerships with a limited number of key suppliers.

In the 2000s

The procurement function started playing a strategic role following the financial crisis, since most companies recognised its contribution in creating value. Traditionally restricted to industry, procurement expanded into the tertiary and public sectors. In 2009, the French government created its own procurement department to help rein in public spending.

The duties of a strategic procurement function today are shared equally between cost management, value creation and risk management, thereby playing a vital role in defending the company's competitive advantage.

In your opinion, what challenges will procurement functions face in the future?